Reader Question: I’m a highschool student and I am very interested in investing and economics. I am wondering what is the best thing to do with the money I have save so far.
I suppose that one major question that answers mine is what do I wish to accomplish? I am not completely sure, I am aware of people that invest to secure retirement; but I also am interested in the idea of making a living off of trading. I am hoping you have some insight or perspective through your own experience in life; what would you do in my position?
I just wanted to know what I could be doing right now financially to prepare myself for my future.
Question From Article: How To Find Good Investment Ideas
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First: Accumulate Knowledge (and make sure its the right knowledge!)
The best thing for anyone interested in investing is to first start learning about investing to ensure you have the proper knowledge to make the best decisions, before you do anything with your money. But when doing so you need to make sure its the right knowledge!
The world is full of financial salesmanship and products that are all hungry for your dollars, but they actually do very little for you. I’d like to also point out the obvious, that all those “advisers” out there, are still working and likely nowhere near achieving the type of financial goals that they are advising on … meaning what they sell you doesn’t work!
As a solid starting point, learning about Value Investing (buying investments/business when they are cheap) gives you a great foundation. Pick up the book, The Intelligent Investor by Benjamin Graham, its a great book for learning the basic principles of value investing. Read Berkshire Hathaway annual letters to shareholders, written by Warren Buffett (available on the Berkshire Hathaway website), and soak up his investing wisdom. If you do nothing else other than these two, you’ll be so much better off financially than the average individual.
Once you have acquired a working knowledge of investing, get your feet wet gradually. You’ll make some mistakes, but continue to learn and reduce your mistakes as you go forward.
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What’s The Real Goal Of Investing?
What is an investor trying to accomplish through investing? This is a very good question, which many investors should be asking themselves. Most people would give the simple answer “to make money”. But what does making money accomplish?
Securing retirement is the conventional mindset, where the prevailing idea is to grow a large nest egg over 40 years, not touch it, and then peel away at it when you are 60+ years old.
My perspective is to invest to secure your freedom, or financial independence. That is the freedom to do whatever you want to in life (and not just when you are old). It is the freedom to make choices, rather than be forced to make choices you don’t want to, or live in a manner you don’t want to.
Investing gives you the means to do both of these.
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Why Are There Only Two Prevailing Alternatives To Achieving Financial Freedom?
There are two extremely popular investment ideas for securing financial independence through investing. But curiously, there are almost no other accepted or talked about alternatives . I’ve come to the conclusion that this is simply due to human irrationality and the availability bias (popular with lots of exposure, vividly talked about).
They are either:
(1) “trading” (day trading or very frequent buying/selling) – In my view this is geared towards the mindset of trying to live off investing immediately (and in most cases prematurely).
(2) through passive income (i.e. dividend investing) – In my view this is geared towards the mindset of living off investing closer to retirement (or an early retirement).
Both of these are narrowly shortsighted and lack the sophistication to accommodate the big picture of life.
A Different Take On Achieving and Keeping Financial Freedom
My perspective on achieving financial independence & freedom involves more planning, as well as living off your investment activities in a much broader sense. It is neither geared towards living off investments immediately, or delaying it so far into the future (retirement) before one can reap significant financial benefits.
To simplify, it is a phased build up of investment assets that increasingly allows you to live off investing in a much more complete way. It integrates and focuses on your life goals using the Function-Centric Investment Paradigm. It encompasses many different aspects of investing (long term holdings, making opportunistic buys/sells, continual re-allocation of capital, some passive income, taxation considerations, etc). By phasing the build up and involving different investment aspects, it leaves you less vulnerable to any single mistake, failures of frequent “trading”, the lumpiness of the markets, and the false sense of security from being over-reliant on dividend yields.
This may seem obvious after having described it. Yet its fascinating how the vast majority gravitates exclusively towards one of the two most popular alternatives, or gives up all together without considering other ways.
Yes, it takes more planning, years to set-up, and patience, but the result is much more complete and reduces the risk of losing that freedom once it has been gained. Think along the lines of creating an elaborate lattice of investment assets that you know will achieve your goals, versus either stringing together a single rope or creating a single parachute in hopes that they will work out.
Thanks and Happy Investing!
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